May 12, 2017

State system backs alt. capital proposal

NASCUS urges agency to 'do what's right'

The state credit union system supports NCUA’s proposal to issue a rule on alternative capital – and the agency should do so, because it’s the right thing to do, NASCUS has written in its 19-page comment letter responding to the advance notice of proposed rulemaking on alternative capital.

“It is incumbent on supervisory authorities to not just do the popular and the easy, but to also do what is right,” NASCUS President and CEO Lucy Ito wrote in the association’s official comment letter on the proposal. “As with NCUA’s derivatives rule, supplemental capital is the right thing to do. It is a potentially valuable ‘tool in the tool box’ of credit unions’ and regulators’ risk management, provides a capital buffer, and serves as a counter-cyclical means to maintain service to members.”

Ito also noted that, from a supervisory perspective (particularly one that also includes a perspective of a deposit insurer supervisor), “more capital, at risk and junior to the share insurance fund, is almost always better than less capital.”

The NASCUS leader wrote that including supplemental capital in risk-based capital ratio calculations is consistent with the statutory purposes of both state and federal credit unions and is sound public policy. She asserted that expanding credit union access to supplemental capital will not impair credit union mutual ownership and governance, nor imperil the credit union tax exemptions. She also wrote that NCUA should look to existing regulation found in state, federal and international regulatory regimes for instruction on shaping its rule.

In general, the NASCUS letter touches on five significant areas:

Incorporating supplemental capital into credit union regulatory capital rules is good public policy;

NCUA has the authority to issue a risk-based supplemental capital rule;

Initial supplemental capital rules should focus on fundamental principles while allowing enough flexibility for the marketplace to develop and innovate;

As it moves forward in its rulemaking, NCUA should work closely in consultation and cooperation with state regulators as envisioned by Congress in the Credit Union Membership Access Act (CUMAA);

VOICES ACROSS CU SYSTEM JOIN IN RECOMMENDING PROPOSAL

Credit unions small and large, trade groups, a former regulator and members of Congress (from both parties) all joined NASCUS in supporting NCUA’s alternative capital proposal, based on a review of letters the groups and individuals filed about the proposal. Among the voices:

Spokane Media Federal Credit Union, an $11 million credit union in Spokane, Wash. (with 1,200 memberships), asserted that access to supplemental capital is a valuable resource for all well-managed credit unions to assist in meeting member needs. “Current capital requirements can restrict the ability of credit unions of all sizes to serve their members,” wrote credit union President and CEO Debie Keesee. “Our credit union personally experienced the board conversation of potentially having to limit member deposits during the recent recession and the flight to safety with our assets increasing over 25% in a two year-period.”

BECU of Tukwila, Wash. – a $17 billion credit union with more than 1 million memberships – echoed those comments. “Supplemental capital will not be the solution to all capital problems, but having the option to count supplemental capital as part of the risk-based net worth requirements is important for credit unions and their members,” wrote BECU General Counsel Mike Ryan. “The market will follow the rule and the rule will likely need to be modified over time.”

The Cooperative Credit Union Association (a trade group representing credit unions in the states of Delaware, Massachusetts, New Hampshire and Rhode Island) noted that the “overwhelming majority” of its members across the four states support alternative capital authority for all credit unions. “The need for capital modernization continues as credit unions experience the challenges not only of external factors such as economic cycles, but also those such as social media and Bank Transfer Day, with no alternatives for growth opportunities beyond their ability to generate retained earnings,” wrote association President and CEO Paul Gentile.

Parker Cann, a retired, former Washington state credit union regulator (and NASCUS board member) urged the agency to look to the states and other federal agencies for guidance. “Existing state and federal bank regulation on similar issues can be looked to as a conceptual starting point. With the input of credit unions and state credit union regulators, I am confident that the NCUA can fashion a balanced rule that would benefit credit unions and their members, and protect the NCUSIF, supplemental capital investors, and other interested stakeholders.”

Reps. Peter King (R-N.Y.) and Brad Sherman (D-Calif.) stated they “fully supported” NCUA’s efforts in the rulemaking and that “providing credit unions access to supplemental capital for risk-based capital purposes will only help enhance the safety and soundness of the credit union system.” They pointed to their bill, the Capital Access for Small Business and Jobs Act (H.R. 1244), which they stated would “make the necessary statutory change to allow credit unions to accept supplemental capital for net worth purposes.”

AGENCY AGREES TO DENY FOIA REQUESTS FOR HOUSE COMMITTEE CORRESPONDENCE

NCUA is one of three federal financial regulatory agencies that have agreed to a request by the House Financial Services Committee to not honor Freedom of Information Act (FOIA) requests related to communications with the committee, it was reported this week. The three agencies – NCUA, the CFPB and the OCC – are among 12 that are overseen by the committee. The agencies received letters from the committee beginning in March stating that “the Committee expects that the [government agency] will decline to produce any such congressional records in response to a request under the Freedom of Information Act or any other provision of law or agreement.”

Other agencies receiving letters were Securities and Exchange Commission; Housing and Urban Development Department; Financial Stability Oversight Council; Treasury Department; Federal Housing Finance Agency; Federal Emergency Management Agency; FDIC; Export-Import Bank; Federal Reserve. According to press reports, the House general counsel stated that congressional communications with executive branch agencies are exempt from FOIA requests whenever Congress expresses the intention that such communications are to retain their status as congressional records.

In an April 7 response,NCUA Acting Chairman Mark McWatters wrote that committee Chairman Jeb Hensarling’s (R-Texas) letter “clearly evinces” congressional intent to retain control of correspondence or other records sent by the committee to NCUA (as well as records the agency generates in response to such correspondence). “Accordingly, NCUA will decline to produce any such records in response to a request under the Freedom of Information Act or other law or agreement because the records would not be agency records,” McWatters wrote.

Hensarling told committee Ranking Member Maxine Waters (D-Calif.), in a March 8 letter, that each FOIA request will be evaluated "on a case-by-case basis with an eye toward disclosure to the maximum extent feasible," adding, "let me be clear, I take transparency very seriously, and the letters that were sent to the executive agencies do not mean that the Committee will advocate for the withholding of all records."

EFFORT TO BLOCK PRE-PAID RULE RUNS OUT OF TIME

A congressional attempt to block the rule on prepaid cards by the CFPB – which recently extended the effective date of the regulation (supported by NASCUS) – ran out of time this week, as a Thursday deadline to take action came and went without a vote. Some Republican senators were attempting to use the Congressional Review Act (CRA) to stop the regulation, now slated to take effect April 1, 2018 (because of a six-month extension by the bureau approved last month). The regulation is intended to create consumer protections for prepaid accounts, primarily through disclosures governing limited liability and error resolution, and periodic statements; posting of account agreements, and; regulation of overdraft credit features that may be offered in conjunction with prepaid accounts.

A successful, simple majority vote in the Senate would have sent the resolution to the House for consideration. If that body passed the bill, it would be presented to President Donald Trump for signature – which would not only set aside the rule but bar any substantially similar regulation in the future.

But the CRA requires that repeal of a regulation by a simple majority vote in each house of Congress must occur within 60 legislative days of publication of the rule (which was Nov. 22); otherwise, the repeal requires 60 votes in the Senate, under Senate rules. With congressional recesses and other days off, the 60-day CRA deadline for the prepaid rule fell on May 11 (according to Senate leadership counting of days that Congress is actually in session, rather than calendar days).

BUREAU BEGINS ASSESSMENT OF RESPA RULES

A plan to assess the effectiveness of CFPB’s Real Estate Settlement Procedures Act (RESPA) mortgage servicing rule has been released by the bureau for a 60-day comment period (which started yesterday (May 11) and ends July 10). The agency stated in a blog posting that it is seeking comments from consumers, consumer advocates, housing counselors, mortgage loan servicers, industry representatives, and others, to suggest sources of data, offer other recommendations, and generally provide information that would help the bureau understand the rule’s effectiveness or improve the work. “We are committed to well-tailored and effective regulations and have sought to carefully calibrate our efforts to ensure consistency with respect to consumer financial protections across the financial services marketplace,” CFPB stated.

PRESIDENT LOOKS TO STRENGTHEN FEDERAL CYBERSECURITY

An executive order focusing on cybersecurity for federal agencies was signed Thursday by President Trump, with an emphasis on “strengthening the cybersecurity of federal networks and critical infrastructure.” The order also lays out a federal government policy to “manage cybersecurity risk as an executive branch enterprise.” Among other things, the order notes that “known but unmitigated vulnerabilities are among the highest cybersecurity risks faced by executive departments and agencies (agencies). Known vulnerabilities include using operating systems or hardware beyond the vendor's support lifecycle, declining to implement a vendor's security patch, or failing to execute security-specific configuration guidance.” The order also states that “effective risk management requires agency heads to lead integrated teams of senior executives with expertise in IT, security, budgeting, acquisition, law, privacy, and human resources.” Cybersecurity of networks and critical infrastructure is, of course, a central topic of discussion at the NASCUS/CUNA Cybersecurity Symposium, coming up in just four weeks in San Diego.

AROUND THE STATES: Johnson retires in IA; marijuana bill awaits signing in VT

Joann Johnson’s service as both a state and federal regulator has given her a unique perspective, which served the entire credit union system commendably, NASCUS President and CEO Lucy Ito said this week upon the announcement of Johnson’s retirement as superintendent of the Iowa Division of Credit Unions, effective May 30. “She has developed a deep reservoir of knowledge about the credit union system, from both the federal and state perspectives, that is both unmatched and unique,” Ito said of Johnson, who served on the NCUA board from 2002-08, and as chairwoman the last final four years ... Vermont this week became the first state to adopt (and send to the governor to sign) legislation legalizing all use of marijuana. All other states only made the change after voter referenda. If the bill is signed by Gov. David Zuckerman (D/Progressive), it will be the first law of its kind.

A new position of vice president, member relations has been created by NASCUS; applications are being taken now. For more information, see the “Career Opportunities” page on the NASCUS website … Scholarships to cover registration and travel costs for state agency personnel to attend training—both NASCUS education events as well as other programs – are available from the National Institute of State Credit Union Examination (NISCUE). National scholarships are made possible by generous donations from member credit unions and member system organizations. See the links for more information, and a list of donors to NISCUE … A reminder that Monday (May 15) is the cutoff date for hotel reservations at the 2017 NASCUS/CUNA Cybersecurity Symposium. The event, June 5-6 in San Diego, is being held at the Westin Gaslamp Quarter Hotel. To ensure your reservation by Monday, use the link below.